Commentary: EDA Industry Update December 2006 -- What did the Last Quarter Bring?

Aart de Geus, chairman and CEO of Synopsys, said, “In 2006 we delivered strong revenue and earnings growth, solid cash flow and business that was notably above plan. As a result of our technology leadership we are seeing increased momentum in customer adoptions and new products. For fiscal 2007 we are committed to reaching a 20 percent-plus operating margin by the second half of the year. Beyond 2007, we expect to drive revenue growth and expense control to achieve our next target operating margin in the mid to high 20s.”

On October 23, 2006 Synplicity, Inc announced its financial results for the third quarter, the period ending September 30, 2006. Total revenue for the quarter was $16.3 million, a 1.2% increase from the $15.9 million in the third quarter of 2005 and a 4.6% increase from the $15.4 million in the just-prior quarter. The $16.3 million for Q3 was in the middle of the guidance given three months ago.

Net income for the quarter was $1.6 million, down 34% from the $2.5 million a year earlier, but up 48% from the $1.1 million in the previous quarter.

Gary Meyers, president and CEO of Synplicity, said, “The results reported for our third quarter again demonstrate solid execution to our plan of focusing on the FPGA market and improving our bottom line. I am proud of the entire Synplicity team for their commitment and execution to our FPGA-focused strategy. We are firing on all cylinders and I expect we will continue to do so during our fourth quarter.”

EDA versus MCAD

The detailed quarterly performances of a selected group of public MCAD Vendors has been provided in the authors' November 2006 MCAD Commentary recently published on MCADCafe.

The three top mechanical CAD companies (Autodesk, Dassault Systemes and UGS) sported revenues of $1.1 billion, 31% higher than the $840 million for the three leading EDA companies (Cadence, Synopsys and Mentor Graphics).

Keep in mind that Autodesk sells its products predominantly through valued added resellers and distributors. Dassault Systemes sells predominantly through IBM and its Business Partners and in some instances, notably SolidWorks, through VARs. Thus, if one were to count actual end user purchases of the latter MCAD products, the combined MCAD revenue total would raise the Big 3 MCAD dollar total substantially. On the other hand, Autodesk has not-insignificant revenue outside MCAD in AEC, GIS and Media/Entertainment.

The comparison of earnings across the two industries is also difficult general due to a plethora of one-time charges associated with acquisitions. The earnings comparison for UGS is further complicated by purchase accounting adjustments related to its Venture Capital buyout from EDS.

EDA Vendor Stock Performance

As shown in Tables 10 and 11 and Figure 3 below, the combined stock prices for the EDA vendors were up an impressive 25% year-over-year in absolute dollars and up 39% in average percentage change. This compares to a rise of only 8% in average price for the three leading stock indexes. Altium was the percentage growth leader at 120%, with Ansoft and Mentor having significant percentage growth at 71% and 64%, respectively. Synplicity was the only year-over-year decliner.

The combined stock prices on a sequential quarterly basis rose nearly 11% in absolute dollars, an average price increase of 21.5%. Altium was again the growth leader at 83%. Ansoft and LogicVision had sequential growth over 20%. Cadence was the only decliner.

Forecast Guidance from Individual EDA Providers

As shown in the table below, all the EDA vendors are forecasting increased fourth quarter revenue relative to both the fourth quarter of 2005 and the third quarter of 2006. On a year-over-year basis, Ansoft and Synopsys are projecting low double digit percentage growth. On a sequential basis, Ansoft is the most bullish at 28% with Mentor next in line at 20%.

Individual Company by Company Guidance

As guidance, Ansoft estimates revenue in the next quarter to be in the range $22 million to $22.5 million, compared to $20.5 million in the quarter just completed. For the year, Ansoft expects top line growth in the 10% to 15% range.

For the fourth quarter of 2006, Cadence expects total revenue in the range of $405 million to $415 million. This compares to $366 million in the quarter just completed, and $378 million in the fourth quarter of 2005. For the full year 2006, the company expects total revenue in the range of $1.458 billion to $1.468 billion. This compares to $1.33 billion in 2005.

For Magma's fiscal 2007 third quarter, ending Dec. 31, 2006, the company expects total revenue in the range of $42 million to $46 million, compared to $42 million in the quarter just completed, and to $41 million in the fourth quarter last year.

For the fourth quarter, the Mentor expects revenue of approximately $229 million, compared to $191 million in the quarter just completed and to $221 million in the fourth quarter of 2005. For full year 2006, the company expects revenue of approximately $774 million, compared to $705 million in 2005.

As guidance, Synopsys expects revenues for the next quarter to be in the range of $292 million to $300 million, compared to $283 million in the quarter just completed, and to $260 million a year ago. For the full fiscal year 2007, the firm expects revenues in the range $1.18 billion to $1.205 billion, compared to $1.096 billion in the fiscal year just completed.

For guidance Synplicity expects revenue in the fourth quarter to be in the range of $17.2 to $17.7 million. This compares to $16.3 million in the quarter just completed, and $16.3 in the same quarter a year ago. This would translate into revenue of $63.6 million for the year, a 2.7% increase versus $61.9 in 2005.

EDA Consortium's Market Statistics

On October 2, 2006, the EDA Consortium's Market Statistics Service (MSS) announced that total EDA industry revenue for Q2 of 2006 was $1,256 versus $1,091 million in the second quarter of 2005, an increase of 15%.

During Q2 2006, CAE accounted for 41% of total revenue, IC Design & Verification for 27%, PCB and MCM for 7%, Semiconductor IP for 19% and Services for 6%.

During Q2 2006, North America accounted for 47% of total EDA revenue, Europe for 18%, Japan for 21% and ROW for 13%.

Reporting companies employed 23,784 professionals in Q2 2006, up 7% from the 22,130 reported in Q2 2005.

Aart de Geus, chairman of the EDA Consortium and chairman and CEO of Synopsys, Inc., said, “It (Q2 2006) was a strong quarter for the industry, with revenue up again in all regions and nearly all categories. This continued growth reflects a healthy environment for the semiconductor industry as a whole.”

The EDA Consortium is the international association of companies that provide tools and services that enable engineers to create the world's electronic products. EDA is the critical technology used to design electronics for the communications, computer, space technology, medical and industrial equipment and consumer electronics markets, among others.

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